Eskom Flags More Annual Losses With Turnaround Still Elusive

(Bloomberg) -- The financial woes dogging South Africa’s behemoth state power utility show little sign of letting up even as the government grants it massive bailouts.

Eskom Holdings SOC Ltd., which supplies 95% of the nation’s electricity, posted a 1.3 billion rand ($88 million) profit in the six months through September, about double a year earlier. However, it still anticipates a 20 billion rand loss for the full year due to lower demand and prices in the summer months. Eskom’s debt burden rose to 454 billion rand, from 440 billion rand at the end of March.

“The Eskom turnaround remains a long and difficult journey,” Jabu Mabuza, Eskom’s chairman and acting chief executive officer, said at the results presentation in Johannesburg on Thursday. “The ultimate goal is to make Eskom profitable.”

Eskom’s precarious state stems from years of mismanagement, a bloated wage bill, massive cost overruns at two new coal-fired power stations and maintenance backlogs at other plants that left it struggling to meet demand. The government has said the utility is too big to fail and allocated it 138 billion rand over the next three years to enable it to keep operating. Yet that isn’t likely to be enough to ensure its viability.

The current financial year will probably represent a high-water mark for annual losses, with smaller deficits seen in 2021 and 2022, said Chief Financial Officer Calib Cassim.

“We will then move from the red zone to the yellow zone,” he said.

Cash flows remain “severely constrained” and Eskom remains reliant on government support to remain a going concern, the company said. Freeman Nomvalo, who was named Eskom’s chief restructuring officer on July 30, is considering options to reorganize its debt.

The rand was little changed, trading 0.2% firmer at 14.7333 per dollar. The yield on rand-denominated debt due December 2026 showed little reaction to Eskom’s results, remaining 3 basis points higher than at open at 8.46%.

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The government plans to split the utility into generation, distribution and transmission units under a state holding company -- a reorganization it says will make it easier to raise financing and improve efficiency. This month it announced that Andre de Ruyter, currently the CEO of packaging company Nampak Ltd., will take the helm at Eskom on Jan. 15 -- an appointment labor unions said was a setback to racial transformation.

“Andre de Ruyter is the most suitable, willing and able South African to do the job,” said Mabuza, who revealed that four of the six people shortlisted for the job were white. “There are not many people that would be so selfless to take a less-paying job to fix the problem.”

--With assistance from Colleen Goko.

To contact the reporters on this story: Loni Prinsloo in Johannesburg at lprinsloo3@bloomberg.net;Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Liezel Hill, Vernon Wessels

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